US Office S-REITs - Are We There (Near Bottom) Yet?

US Office S-REITs - DBS Research 2022-10-19: Are We There (Near Bottom) Yet?

US Office S-REITs - Are We There (Near Bottom) Yet?

SGinvestors.io

Published: 2022-10-21 02:25 PM

PRIME US REIT (SGX:OXMU) KEPPEL PACIFIC OAK US REIT (SGX:CMOU) MANULIFE US REIT (SGX:BTOU)

The US Office S-REITs have been one of the biggest ‘casualties’ among the S-REITs with share prices have declined 35% to 49% year-to-date. Manulife US REIT's share price and Prime US REIT's share price are now 39% and 10% below that of Mar 20 (COVID) low while Keppel Pacific Oak US REIT's share price is still 32% above Mar 20 (COVID) low. See summary of S-REIT's share price performance.
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Down but not out – some potential earnings risk but there are mitigating factors that could offset some earnings risks.

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The adoption and impact from hybrid working is larger than expected
US companies are in a stage of reviewing their office space needs

In addition, with heightened fears of recession, potential rationalization of staff force could further spur potential downsizing of office space. While we have started to hear pockets of staff lay-offs, the low unemployment rates and strong non-farm payrolls data is still supportive the US employment situation.

As such this may pose some potential earnings risk on the US Office S-REITs with potential higher vacancies. Some known larger vacancies to-date in Manulife US REIT’s and Prime US REIT’s portfolio could have driven the underperformance in share price compared to Keppel Pacific Oak US REIT.